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Monday, 30 November 2009

When Buying Silver, Coins Simply Make Sense

Investors have a variety of instruments to gain exposure to silver. Often, deciding how to buy silver (in the form of coins, numismatics, futures, ETFs, or stocks) can be one of the most important decisions an investor makes.

Physicals First and Foremost

Physical metals, which you can hold in your hand, are the best way to invest in today's low silver prices. The adage "if you can't hold it, you don't own it" couldn't be truer in today's world of commodities investing.

After the Great Depression, the federal government made gold and silver ownership illegal. Thus, silver and gold held in vaults were confiscated at prices well below market value, while physical gold and silver coins remained in the custody of their owners. While it might be a stretch to think the same may occur today, the government's actions in the 1920s do shine importance on the ability to actually hold and own your precious metal investments.

Silver Bars and Coins: Making the Choice

Of the different types of physical silver, investors have to make a choice between silver coins or bars. Coins usually contain as much as one ounce of silver and can sometimes be mixed with other metals to form a stronger coin that can last many transactions.

Bars, on the other hand, are almost always entirely pure, and vary in sizes, shapes and the brand stamped onto the bar.

From the perspective of liquidity and acceptability, coins are both easier to sell and authenticate, as the weight, measures, and silver content of each coin is well regulated by the mint and published in a number of coin books. Bars offer less liquidity, as they can range in weight from 10 ounces to 100 or more.

At today's prices, a 100 ounce bar of silver costs as much as $16,500 - which only a few banks, coin dealers or investors may be willing to buy. In addition, bars can vary in their stamp from the producer, which authenticates its purity and weight. Some investors will only buy silver stamped by certain producers, while almost all of them will buy official US mint coins.

Pricing Premiums

Physical metals do come with a higher premium than other "paper" forms of silver due to storage and shipping costs. However, with physical metals, the premiums do not disappear after the silver is purchased. In fact, the premium may actually grow as demand for investment-grade silver grows.

One of the many reasons physical metals carry a premium is that there is much greater demand for small units of silver. In addition, physicals are more readily demanded by investors than "paper" silver.

Making the Right Investment

The lowest premiums and the highest liquidity are often found in old dollar coins and in junk silver, which is 90% silver by weight. The small units allow for small transactions, opening the pool of investors to whom you can sell. Their size also increases the premium price you'll be able to receive for your silver in the future. In addition, in many areas, silver is being accepted at its spot value, and coins like the pre-1965 quarter has a value of roughly $3, making it easy to exchange.

In the beginning, a lot of folks feel intimidated about buying physical silver. However, in the end, it may be the safest way to play.